New reporting rules mean financial hardship must stay on credit report

Consumers will have private financial hardship information exposed on their credit reports for the first time as a result of a bill passed on 3 February 2021. The National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019 will permit the sharing of financial hardship information within the credit reporting system, among other things.

It comes as the government introduced a bill to repeal the very same safe lending protections it used to justify exposing financial hardship information in the first place.

Seeking a repayment arrangement from your lender because of a temporary setback has, until now, been a matter between banks and their customers.

Financial Rights Legal Centre chief executive officer Karen Cox said the passing of this bill meant that financial hardship information would be retained on a person’s credit report for 12 months or more, even if an individual was only in hardship for a very short time.

“Financial Rights is very concerned that people will shy away from seeking assistance from their lenders, when people become aware of these changes,” Ms Cox said.

“Financial Rights has spoken with countless people who would rather continue to struggle with unsustainable payments or look for dangerous quick-fix solutions, such as payday loans or expensive refinancing, rather than risk having what they perceive as negative information listed on their credit reports.

“There have already been reports in the media of people ghosting their lenders as COVID-19 support ends. This change is likely to make the problem worse.”

The Australian government has justified the inclusion of financial hardship on credit reports because it supports better responsible lending.

“Permitting financial hardship information to be viewed together with repayment history information on credit reports can potentially assist credit providers to better meet their responsible lending obligations and properly assess the suitability of a credit product for a particular borrower,” Ms Cox said.

“But in the absence of safe lending laws, there is a danger that this information may be used by unscrupulous lenders to target people in financial stress for more expensive, risker products.

“This puts individuals and families at risk during a period of unprecedented financial hardship.”

Ms Cox said that while some last-minute amendments to the bill would be beneficial to consumers, including access to a free credit report every three months and free access to credit scores, the requirement to list financial hardship information on credit reports would lead to fewer people in serious financial hardship reaching out to their credit providers for assistance.

“If the responsible lending laws are also taken away, some of these people will inevitably become targets for predatory lenders offering a quick short-term fix that will only make the situation worse,” she said.

These changes are particularly concerning in light of the more than 900,000 Australians who have taken on hardship deferrals during the COVID-19 crisis.

“Had this bill passed in 2019, all of those people would now be branded with ‘hardship’ for upwards of 18 months or more,” Ms Cox said.

“Their ability to get credit in the future could be severely affected, making recovery from a disaster even more difficult.

“Now that these credit reporting changes have gone through, it is even more critical that safe lending laws remain in place,” she added.

What do you think of this update? Do you think it will encourage more responsible lending?

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

Related articles:
https://www.yourlifechoices.com.au/finance/seniors-finance/financial-advisers-fight-back-as-their-numbers-plummet
https://www.yourlifechoices.com.au/finance/what-is-the-consumer-price-index-and-how-does-it-work
https://www.yourlifechoices.com.au/finance/credit-cards/six-reasons-retirees-still-need-good-credit

RELATED LINKS

Financial advisers fight back as their numbers plummet

No choice but to pass on extra costs created by royal commission: spokesperson.

What is the Consumer Price Index and how does it work?

The Consumer Price Index is an important economic indicator, especially for retirees.

Six reasons retirees still need good credit

Don't assume your score no longer matters once you reach a certain age.



SPONSORED LINKS

LOADING MORE ARTICLE...